(Estimated Timeframe: 2 – 3 hours)
It will finally be time to hand over the remaining closing cost payment and receive the keys to your new home on closing day. The average timeframe in New York City from an accepted offer to closing day is 60-90 days. But with so many variables in play, it can sometimes take longer.
Preparing for Your Closing
When negotiating a final offer price on a New York City property, both buyers and sellers should have a reasonable idea of their closing costs. Difficult to estimate, potentially running into hundreds of thousands of dollars, added to the property’s purchase. Worst of all is that buyers tend to underestimate those final closing costs.
New York City has a plethora of co-ops and condos. However, there are distinct differences between the two. Not discussed often, but with the different ownership structures, there is a vast disparity between the closing costs for a co-op and condo. Purchasers should prepare to pay a markedly higher amount for condos.
Condos most closely align with what one thinks about homeownership. That is, owning real property. Co-ops are more akin to owning shares in a corporation. We provide a breakdown for buyers to understand better where the difference lies.
Closing Costs Explained
Closing costs in New York City are usually 2-6% of the purchase price for buyers. The final bill is based on several factors such as property type (co-op or condo), level of financing, purchase price, and whether or not the property is new construction.
If you are purchasing a condo, the closing costs will be higher; you’ll need to cover title insurance for a start. Set by New York State and comes with several administrative charges, which all together come to about $3,000 to $4,000. Then there are the extra costs if you’ll need a mortgage. Bank fees run from $2,000 to $3,000, while bank attorney fees and the appraisal go from $500 upwards. If the loan is over $500,000, you’ll need to cover a mortgage tax of 1.925% for loans under $500,000. It’s 1.8%, something which only applies to condos.
Whether you’re buying a co-op or condo, you’ll need to pay your attorney’s fees, which can range from $2,000 to $3,000. In addition, the deal can be more complicated than usual if you set up an LLC to purchase a condo as an international buyer. Then the attorney costs will increase and require additional work in filing the LLC.
If the property is purchased at over $1,000,000 an, additional 1%+ mansion tax is added to be paid by the buyer. For instance, a property sold for 1.87 million would have a mansion tax of $18,700. It’s not uncommon in negotiations for the purchase price to get knocked just below the $1 million thresholds to avoid this tax. The mansion tax has also just risen; please refer to our Mansion Tax article to fully break down the increased mansion taxes.
Mortgage Recording Tax
Typically a condo buyer most substantial closing cost. The state and city impose a charge on both new and refinanced mortgages, with the percentage increasing with the mortgage balance.
The tax rate ranges from 2.05% for mortgage balances less than $500,000 and increases to 2.175% for loan amounts more significant than this amount. The tax rises to 2.8% for mortgages greater than $500,000 on specific properties, but not condos.
For instance, assuming the $945,000 price and a 20% down payment, buyers owe more than $16,000.
Co-op buyers do not have to pay this tax since they are not buying real property. Instead, you purchase shares in a corporation and receive a proprietary lease that allows you to live in the unit.
Lenders require condo buyers to buy title insurance to protect against future claims that arise from title disputes. The insurance company bases the premium amount as a percentage of the purchase price.
Aside from the lender’s title insurance, an owner can also purchase title insurance. The former’s premium declines as the mortgage balance decrease while the owner’s policy protects you for the full purchase price or, if you choose, the property’s market value.
However, lenders do not require co-op owners to buy title insurance.
Real Estate taxes
While only condo owners bear responsibility for mortgage taxes and title insurance, both pay real estate taxes. If you choose to pay the property taxes on your own, you do not have to set up an escrow account. Meaning you have to budget accordingly. However, if you roll it into your mortgage payment, the lender will require you to put a certain amount aside at the time of your closing. It means you have to come up with potentially several months’ worth of taxes.
A co-op’s taxes are based; on the number of shares you own. Hence, you pay this with your monthly maintenance fee.
Each co-op and condo is different in the fees they apply. Most co-ops and condos have move-in and move-out fees that range in price from a few hundred to a couple of thousand dollars. Board application fees range on average from $500 to $700. When making your board application, they will send you a list of what’s needed and the fees involved. Buyers should read this carefully, so they are fully aware.
Sponsors Closing Costs
A significant expense for buyers of new construction properties is that they are responsible for closing costs. Includes transfer fees, the attorney’s fees, and, if applicable, their unit’s share of the building’s sponsor apartment. It also applies to sponsors in co-op apartments. Depending on the purchase price, this can all add up to hundreds of thousands of dollars.
It is a minor amount, but mortgage and deed recording fees are generally lower for co-ops. So co-op buyers are likely to save a couple of hundred dollars, but you are likely to spend any savings you realize on higher board fees.
Buyers should carefully consider all potential closing costs. Even with the best research, you will only get an approximate estimate. You will not know the final bill until the closing day.